Web analytics is becoming a hot niche in a cold Internet
advertising market, as a slew of companies launch projects to make sense of
consumer data collected online.

Units of AOL Time Warner and SPSS, an analytical technology company, joined
forces this week to tap America Online's vast audience for market research.
Other companies such as online advertising company Agency.com and search
service LookSmart have recently introduced consulting and Web analytics
divisions. Online portal Yahoo also has been selling insights to
advertisers and partners from data collected on its millions of users.

Web companies are hoping analytics services--the process of making sense of
data compiled from cookies and other data-gathering techniques--will prove
the Internet is worthy of dwindling ad dollars and provide a new
source of revenue. During the dot-com implosion, doubts surfaced about the
efficacy of online marketing. Web companies sought to dispel those concerns
by producing in-depth research on the medium's performance and
effectiveness. Now, many are looking at the reams of data they collected on
consumers with fresh eyes, hoping to cash in its effects for market research.

But industry experts say their efforts may be short-lived because of
apparent conflicts of interest, fierce competition in the industry and an
overestimation of the market's worth.

"Everyone in the online space is looking for additional sources of revenue,
especially given the slowdown in online advertising," said Jim Spaeth,
president of the New York-based Advertising Research Foundation. "These
companies are data rich, so research looks like a good idea. The
problem is that for the same reason that online ad revenues have slowed, ad
research has slowed even more. Nobody's advertising, nobody's testing."

Industry veterans estimate the U.S. research market is worth about $7
billion annually, with the international market reaching about $16 billion.
As attractive as that looks, marketers typically spend only a half of a
percent of their ad budgets on research, experts say. Sales in online
market research were only worth about $259 million in 2000 and are expected
to hit about $459 million this year, according to research firm Inside
Research.

Nevertheless, AOL says its new partnership is expanding the revenue
potential for its marketing subsidiary, Digital Marketing Services, which
has been conducting online surveys with AOL's and affiliates' customers,
who agree to answer questions about products and services in exchange for
rewards. The deal with SPSS opens the service, at Opinionplace.com, to more
companies looking for Web research, said Dennis Gonier, senior vice
president at AOL. In addition, marketers will have access to one of the
largest samples of customers through the program, including AOL's 31
million members.

"These are resources for an extending industry, allowing more research
companies to conduct surveys online," said Gonier.

Others are hoping to take advantage of data collected daily from Web usage
and advertising campaigns.

Last week, New York-based Agency.com launched a division called Site
Analytics, which will use Web site traffic patterns as a basis for
developing targeted marketing strategies. LookSmart also announced a
service last week to track, report and optimize online marketing for its
partners. It hired the founders of former Web analytics firm Primary
Knowledge and licensed its early technology to crunch the data. And earlier
this year, Yahoo pushed into Web analytics, promoting its Full Service
division for data-warehousing, hosting and research services for advertisers.

Agency.com, for example, plans to analyze customer behavior and motivations
through its clients' Web server logs. It hopes to help clients improve
sales and site performance, save money on marketing, and justify spending
on the Web.

Industry analysts, however, are quick to highlight an inherent conflict of
interest in consultancy and analytic services within many companies. For
example, an agency selling inventory on sites and conducting research on ad
performance could run into problems if the numbers don't justify the money
spent.

"If research gives a client a report showing that all the ads placed on
children's sites didn't work, for example, then the client will most likely
ask, 'Why the hell did you buy ads there in the first place?'" said Gartner
analyst Denise Garcia.

Because companies want unbiased research, these divisions will never be as
big as hoped, she added.

In addition, companies selling Web analytics services will be competing
directly with such entrenched companies as Jupiter Media Metrix, Millward
Brown and IPSOS-ASI. Other companies, such as Dynamic Logic, have carved
out niches in the market.

"People get into this business and then quickly discover that it's harder
than they thought," said Nick Nyhan, CEO of Dynamic Logic, which
specializes in research on the effectiveness of brand advertising on the
Internet. "Research is not just about data collection; it's also about
interpretation and telling a story. That's a skill set."

Nyhan said he doesn't view new competition as a serious threat because he
believes there will always need for independent research.

"It's a cost of doing business for some of the publishers, and ultimately
they could turn this into a business if they want to make a dedication to
it," he said. "But this is also a time of cutting costs, and companies tend
to want to do things as quickly as possible."